Builders' Confidence Recovers From Hurricane Blow in October

Recovering from the hurricanes, U.S. homebuilders’ confidence gained 4 points from the previous month in October, resulting in a confidence level of 68 – the highest since May 2017. Also, it improved from the year-ago figure of 63.

The National Association of Home Builders or NAHB/Wells Fargo Housing Market Index (HMI) includes builder perceptions of current single-family home sales, sales expectations for the next six months and traffic of prospective buyers. A reading above 50 is considered positive. Notably, all three HMI components gained in October.

Though builders have recovered from uncertainties created by the hurricanes, labor shortage and higher material costs will continue to pose concerns. Builders need to be wary about the fact that shortage of skilled construction labor is expected to worsen following the two devastating storms and rebuilding operations are likely to drive material costs higher, causing delays.

It is important to note that the index dipped 3 points in September from August but still remained at a confident level of 64 points. Thus, though the homebuilding industry might face some bottlenecks in the short term as is evident from the lackluster home sales data for the July-August period, the overall picture is pretty compelling.

Housing got off to a solid start this year and the trend is expected to continue through next year, courtesy of healthy demand, strong economic growth, historically low mortgage rates, escalating rent costs and easy availability of loans.

The Zacks Homebuilding Industry has outperformed the broader market (S&P 500) so far this year despite dampeners. The industry has gained 41.1%, compared with the S&P 500 index’s 14.2% increase. Notably, the homebuilding industry ranks among the top 29% of all Zacks industries. Along with a strong past performance of the industry, a good industry rank signals that companies in this space are likely to benefit from favorable broader factors.

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